Captive Power Regulation in Uganda
Introduction:
What is Captive power?
Captive power is a term used to describe behind-the-meter electricity generation used explicitly or mainly for self-consumption. In some countries, this form of power is called small – scale embedded generation. It is a power facility managed by a private concern for its own consumption. The power plants can operate off grid or connected to the national grid to exchange excess generation. These plants use any form of technology and may comprise hybrid sources.
Historically, captive generation originates from large consumers’ needs for reliable and sometimes cheap energy for their own consumption. For instance, aluminium/steel mills and mining projects require uninterrupted power and pursue captive power projects due to their reliability and the operator’s ability to control increases and decreases in generating capacity in line with their production cycles. In a number of countries, high electricity consumption for industrial and commercial needs have been met through captive power installations rather than dependence on unreliable grid electricity.
Investment Climate:
There has been growing international appetite for investment in Uganda’s isolated grid sector and captive power generation. To that end, in order to promote investment in these areas, Uganda enacted the Electricity (Isolated Grid Systems) Regulations in 2020. These regulations are read together with the parent legislation the Electricity Act 1999 Cap 145 as amended. Together, they form the regulatory framework for captive power and isolated systems like mini-grids in Uganda.
Insights into the Electricity (Isolated Grid Systems) Regulations, 2020[1]:
These regulations establish parameters for registration and license exemption in line with the Electricity Act. The rules allow developers to register their small generation systems or obtain certificates of exemption instead of having to obtain licences for isolated-grid infrastructure. This approach is designed to facilitate small generation systems and isolated grids, as obtaining a licence can prove a lengthy process that could discourage entities from investing and establishing such infrastructure in the country.
These regulations apply to generating stations for commercial purposes with a generation capacity not exceeding 0.5 Megawatts and to isolated grid systems where the generation capacity does not exceed 2 megawatts[2].
The regulations include mandatory conditions for generators for commercial purposes. Commercial purposes pertain to electricity generated with the primary objective of supporting commercial and industrial activities through captive power. As such, developers and industrial/commercial consumers who are considering captive power options are well covered under the regulations. However, it is important to note that depending on the actual purpose of the developer and the size of the installation, the regulations may or may not apply to their cases.
The definitions for isolated-grid systems and the use of captive power are specified in Regulation 3 – the interpretation clause as follows;
Isolated Grid System refers to any isolated electricity supply system with its own power generation and distribution network, supplying electrical energy to consumers that is not connected to the main grid.
Commercial Purposes means electricity that is generated with the primary purpose of supporting commercial and industrial activities through captive power.
It is quite clear that these definitions may overlap; the actual purpose of a given generator and its connection to the grid are the decisive factors determining which regulation will apply to the respective systems. In addition, the size of the installation is also essential in determining the process of registration, license or certificate of exemption that the operator will have to obtain.
In regard to captive power, it is important to have the definition for commercial purposes in mind, which suggests that instead of applying for a license, commercial and industrial consumers can opt for registering their generator up to 0.5 Megawatts. There is increasing interest in the captive power market due to considerations such as cost savings, improved reliability of power supply and promotion of use of renewable energy systems to ward off the use of fossil fuels, mainly through solar and biomass sources.
Since there is no clear regulation regarding the sale of surplus electricity to the grid, most grid-connected customers are recommended to develop captive power projects that would not entail excess spill over to the grid.
If the project is larger than 0.5 Megawatts, even if there is no spill over to the grid, or even if the facility is off-grid, a generation license application process, fees and reporting will be applicable. However, if the captive project is less than 2 Megawatts and plans for local distribution of electricity, it may be possible to obtain a license exemption under the regulations, which would save the applicant from paying higher licensing fees.
Under Regulation 6, a person who intends to develop or operate an isolated grid system with a generation capacity not exceeding 2 Megawatts shall apply to the Electricity Regulatory Authority (ERA), being the authority for a certificate of exemption, exempting the developer from the requirement to hold a licence for generation, distribution or sale of electricity. Further under the Regulations[3], the developer is allowed to submit a single application for multiple isolated grid systems within the same geographical location provided that the total generation capacity of all isolated grid systems within each application do not exceed 2 Megawatts.
This certificate of exemption is the way the regulator incentivises this type of developments, as developers avoid the lengthy licensing process and can start developing their projects in a more efficient manner.
Conclusion:
The country now has a captive power regulatory framework in place. The main point of emphasis is that the captive power systems with capacities under 0.5 Megawatts can be registered instead of acquiring a license. Captive power with capacities under 2 Megawatts and plans for local distribution of electricity can adhere to the isolated grid infrastructure. This way investors are incentivised to invest in these technologies avoiding the laborious licence regime.
It should be noted that the clean and just energy transition has partly influenced the deployment of these technologies as a result of cost declines for power systems. As a result, all types of industries are enabled to invest in embedded generation by compiling solar power units with generators or cogeneration units along with battery systems containing their captive power segment plants thus driving the green agenda. With this as the driving force, such installations are now being found in a wide spectrum of sectors, including FMCG companies, shopping malls, the agro powering industry, education institutions and fuel service stations.
The content of this article is intended to provide a general guide on the subject matter. Should you want specialist advice for specific circumstances, please get in touch with our Mr. Kefa Kuteesa Nsubuga on email: [email protected] or Tel No. +256 393 256 620.
